Where’s the Trump Put?
On Tuesday Trump went some way towards remediating for his comments that appeared to show a disregard for a recession over the weekend. In a Fox News interview on Sunday the President declined to rule out the prospect of a recession, contributing to the stock market decline come Monday. For what had been seen as a pro-market president, one that often benchmarked his own successes based upon the market’s reactions, his disregard to signals from (particularly equity) markets was surprising.
As a result of the President’s affinity with markets there had been much talk of a Trump Put. Similar to the former Fed Put which became common place in market lingo several decades ago, this refers to the function of the President (or formerly Fed) to act as a natural insurance or backstop to asset prices. This compares the President to playing the role of a put option contract would play for the buyer. The Trump put analogy was built upon the belief that when the market began to sell off, the President would likely take measures that may reverse any such value decay.
With major US equity indices off some 10% in the face of the ongoing trade war, many are questioning the belief they once held in the Trump put. Many question whether this President, not eligible for a second term, still cares as much as previously thought about market and public opinion. On balance, President Trump likely does still value the impact of his policies on the market but is prioritising a deal on trade. Therefore, there will be a threshold of pain for US consumers, businesses and markets that is intolerable for the President, we just aren’t there yet. So instead, maybe the strike price of the put is lower than many would have thought… markets will now just have to hope the Trump put doesn’t expire too soon!
Discussion and Analysis by Charles Porter
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